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Here we go again. As explained in my article on “Spanish Inheritance Tax: Advantages of Making a Will in Spain (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht)” the matter of Inheritance taxation is a fairly complex and technical one compounded by the fact that the 17 autonomous regions of which Spain is made can rule on this matter besides the State.

Spurred by protests of non-residents inheriting in Spain (are you to blame Arthur?), Brussels has taken a closer look at this matter and has informed Spain that it gives it a 2 month’s deadline to set the record straight or else it will send the matter off to the European Court of Justice to rule on this issue. In any case don’t hold your breath, it will take some time to sort out.

In Spain there’s an ongoing trend to abolish Inheritance tax, especially in regions under the political control of the conservative party. This has created a three-tier system, speaking broadly, where you have on the one hand an increasing minority of regions which have gone as far as almost suppressing this tax whereas on the other hand you have a majority that apply generous tax allowances without actually suppressing it (i.e. Andalucía). Regional tax allowances are applied only to resident beneficiaries on one of the said regions.

On a third level you have the State regulation which has the least generous tax allowances and is applied to non-residents inheriting in Spain. Beneficiaries of an inheritance resident in one of these regions can take advantage of these generous regional tax allowances which in many cases almost suppress the Inheritance taxable base.

However non-resident beneficiaries inheriting in one of Spain’s regions may be faced with a hefty taxation bill (specially on large estates or when the named beneficiaries are non-family members) as it’s only the State law that is applied in their case in lieu of the more lenient regional laws. This amounts to a formal discrimination between residents and non-residents. These provisions are deemed to be incompatible with the free movement of workers and capital which the founding EEC Treaty of Rome enshrines. Brussels wants for non-resident beneficiaries to have application of State law waived and instead apply regional laws which are more tax-friendly. The problem will be deciding on the “connecting factor”. You can read in English the European Commission’s press release on following this link. (http://ec NULL.europa NULL.eu/taxation_customs/resources/documents/common/infringements/factsheet/2010/05/2010-05-513-es-tax-personal_en NULL.pdf)

Following what’s happened in similar cases, we can safely assume that non-resident beneficiaries will be able to benefit in the future from the generous regional tax allowances that are now reserved exclusively to those holding resident status in one of Spain’s 17 different regions. Again, this new regulation will greatly reduce lawyer’s headaches. One just cannot stop himself from having warm feelings towards Brussel’s legislators that keep making our life’s easier.

Every year 450,000 successions are bogged down on cross-border issues relating to the applicable laws. The EU has decided to adopt regulation to help avoid all the related problems that these transnational inheritance cases give way to.

This new regulation, known as the “Brussels IV Regulation”, purports to create a “European Certificate of Inheritance” which endeavours to harmonise the winding-up of the estate procedure to be followed. This certificate is devised to greatly simplify succession procedures throughout all EU-member countries and will hinge on the person’s last “habitual residency” to determine which succession laws ought to be applied. Additionally, this new regulation will also allow testators to choose which regulation should be applied to dispose of their assets and rights.

This regulation is not expected to be approved before 2011/2012. You can find a draft of this interesting new law in English here. (http://www NULL.justice NULL.gov NULL.uk/consultations/docs/ec-succession-wills NULL.pdf)

In case you are worried that Brussels will meddle on your deathbed dictating on your overseas estate you ought to know that both Ireland and the U.K.’s Government have opted out of its application, at least in its present form. So for the time being if you hold either of these citizenships you shouldn’t be too worried.

In any case let me close adding that this new regulation is geared towards making European succession procedures run smoothlier and more efficiently; they are not passed to curtail your national rights. Besides it’ll make us lawyers’ life’s easier… and that cannot possibly be wrong, can it?

Related articles:

Spanish Inheritance Tax: Advantages of Making a Will in Spain (http://belegal NULL.com/articles/showArticle/spanish-inheritance-tax-spain-iht) – 3rd September 2009

Free Testamentary Disposition for UK Citizens: Only if You Own Property in the UK (http://belegal NULL.com/blog-by-antonio-flores/free-testamentary-disposition-for-uk-citizens/) – 22nd October 2008